Question

Suppose that an insurance agent offers you a policy that will provide you with a yearly income of $73,000 in 30 years. What is the comparable annual salary today, assuming an annual inflation rate of 4% (compounded annually)? (Round your answer to the nearest cent.)

Answer 1

Comparable annual salary today is $22,507.26

Explanation:

Data provided in the question:

Yearly income = $73,000

Time period, n = 30 years

Annual inflation rate = 4% = 0.04

Now,

Using the compounding formula, we have

Future value = Present value × (1 + rate of inflation)ⁿ

or

$73,000 = Present value × (1 + 0.04)³⁰

or

$73,000 = Present value × 3.243

or

Present value = $22,507.26

Hence,

Comparable annual salary today is $22,507.26